Abstract
Ambiguity affects decisions of people who exhibit a distaste of and require a premium for dealing with it. Do ambiguity-neutral subjects completely disregard ambiguity and react to any vague news? Online vending platforms often attempt to affect buyer’s decisions by messages like “20 people are looking at this item right now” or “The average score based on 567 reviews is 7.9/10”. We augment the two-color Ellsberg experiment with similarly worded signals about the unknown probability of success. All decision-makers, including ambiguity-neutral, recognize and account for ambiguity; ambiguity-neutral subjects are less likely to respond to vague signals. The difference between decisions of ambiguity-neutral and non-neutral subjects vanishes for high precision signals; still less than 60% subjects choose the ambiguous urn, even for high communicated probabilities of success. We conjecture participants may discard information, if they see no contradiction between it and their prior beliefs, hence the latter are not updated. Higher confidence makes subjects more likely to discard the news, and empirically ambiguity-neutral subjects appear more confident than those ambiguity-averse.
Highlights
News affects behavior of individuals, organizations, and whole markets even if the conveyed message lacks precision.1 A special type of imprecise news can be seen in on-screen notifications common in online stores and booking platforms: ‘‘Booked 4 times on your dates in the last 6 h on our site
Note that the weak response of ambiguity-neutral subjects to signals manifests in the fact that in no treatment we have any more than 60% of them choosing the ambiguous urn, A
This approach explains, for example, why ambiguity-neutral subjects may differently respond to signals of different levels of ambiguity: vague signals will not reject the prior belief, and have no impact on decisions, while signals with low ambiguity will lead to an updating of beliefs, and affect decisions
Summary
News affects behavior of individuals, organizations, and whole markets even if the conveyed message lacks precision. A special type of imprecise news can be seen in on-screen notifications common in online stores and booking platforms: ‘‘Booked 4 times on your dates in the last 6 h on our site. A special type of imprecise news can be seen in on-screen notifications common in online stores and booking platforms: ‘‘Booked 4 times on your dates in the last 6 h on our site. Last booked for your dates 26 min ago.’’ (booking.com), ‘‘In high demand: 28 booked in the last day’’ (rentalcars.com), ‘‘Customer reviews: 4.1 out of 5; total 4354 customer ratings’’ (amazon.co.uk), etc. Ambiguityneutral subjects are less likely to change choices in response to vague news, implying that somehow vagueness matters for them despite neutrality to ambiguity; they disregard messages that communicate very high probabilities of success. A possible explanation is in the lack of updating of prior beliefs by subjects with high confidence, which appears to correlate with ambiguity-neutrality
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